Tuesday Morning


Equity markets look to rally for last day of the quarter and around mid day we should get another set of natural gas production data from the EIA. Other than that, not a lot of energy news out there today.

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Crack Spread Update
  4. Odds & Ends

Holdings Watch: All $10KP trades. The Wiki Tab is updated.

  • Sold (20) HAL $15 April Puts for $0.73, up 89%.
  • Sold (10) NBR $10 April Puts for 0.80, up 30%.
  • Added (10) GMXR $7.50 April Calls (GUFDU) for $0.45 with the stock off about 17% at $6.40. This is another bank redetermination fear play in the E&P sector.
  • Added (3) SWN $30 April Calls (SWNDF) for $2.15 with the stock at $30.40. I continue to hold the $35 calls as well.

Note: I by no means think the estimates of have caught with the downside reality in many of the oil service names yet. Will reposition on the next bounce.

Commodity Watch:

Crude oil tumbled $3.97 (7.6%)  to close at $48.41 yesterday on the May contract. I continue to see the wild gyrations in the crude strip as part of the normal topping or in this case bottoming action. This morning the dollar is backing off yesterday's rally and crude is trading up just over a buck.

  • Early Read on Crude Inventories: (from the Reuters Survey)
    • Crude: up 2.6 mm barrels
    • Gasoline: down 1.1 mm barrels
    • Distillates: down 1.3 mm barrles
  • OPEC Watch: Tanker tracker Oil Movements sees OPEC shipments dropping 0.77 mm bopd to 22.23 mm bopd for the four-week period ended April 11 compared to the prior four-week period.

Natural gas closed flat at $3.74 yesterday. We get the gas production numbers from the EIA a little later today and I'll have the usual slide show out with comments in tomorrow's post. This morning gas is trading up slightly and a hold of current levels is pretty important to the charts now.

  • Imports Watch: 8.2 Bcfgpd, down 0.3 Bcfgpd from last week and down 1.2 Bcfgpd from last year.
    • LNG volumes totaled 1.1 Billion cubic feet of gas per day (Bcfgpd), which was 0.4 Bcfgpd more than a year ago.
    • Canadian imports last week were 7.1 Bcfd, which was 1.6 Bcfd less than last year. This isn't so much a function of availability as Canadian gas storage is about as full as U.S. storage is. Its a question of storing the gas now or sending it south for rock bottom prices.

Production in Canada has been slipping and demand from oil sands production has been rising ... Production in the Western Canadian Sedimentary Basin, Canada's largest producing region, appears to be hitting a wall and will need more activity, not less to right the ship.

... Meanwhile low prices in Canada have yielded reduced activity levels. Drilling in Canada is environmentally seasonal but take note of the lower peaks. Average rigs on the job are slipping.

  • Early Read On Natural Gas Inventories: The a small sample of the Street is looking for a range of -5 to +15 Bcf for Thursday's report.

Crack Spread Update

Refiner Multiple:


  1. We need to see more evidence of gasoline and distillate demand in tomorrow's EIA report. U.S. refinery utilization is at a 17 year low for this time of year. The trick will be ramping utilization into Spring without flooding the product market and crushing margins. For this we need some return of demand; that looks to have begun slowly over the last several weeks for gasoline.
  2. Direction of recent revisions to EPS estimates: lower. Estimate reductions had eased mid way through the quarter but have recently accelerated again as cracks fell below year ago levels for a quarter average.  Until that stops, people are going to view the group as "cheap for a reason".
  3. Yesterday saw a negative reaction in cracks and from the group to refinery restarts. There are a lot more restarts ahead of us so I'll be watching for less of a negative reaction to capacity come back on line.
  4. The refining group appears to be range bound within a very wide range and we are back near the bottom of that range for the bigger names.

Odds & Ends

Analyst Watch: (NXY) cut to Market Perform at Raymond James.


68 Responses to “Tuesday Morning”

  1. 1
    zman Says:

    PVA redetermination seems to have gone ok BOP.

  2. 2
    elduque Says:

    BDI -31 1615 (still sliding)

    TED 101.13

    BOP – what is going on with the TED this morning.

  3. 3
    BirdsofpreyRcool Says:

    PVA — interesting. Had heard that PVA’s borrowing base would go UP. PR this morning makes that partially true… PVA’s borrowing base went down 6%, but it’s MLP (PVR) has it’s base increased by $100mm to $800mm. Once again proving the addage: “The devil’s in the details.”

  4. 4
    BirdsofpreyRcool Says:

    elduque — looks like treasury yields are up and LIBOR rates are down… so, TED spread narrowed.

  5. 5
    BirdsofpreyRcool Says:

    eco-wise, the Case-Shiller home price index came in down 18.97% YoY… vs down 18.6% expected. So, just that much closer to a bottom in home prices.

  6. 6
    BirdsofpreyRcool Says:

    Head Trader thinks today is “back-and-forth” and “non-trade-able.” He also thinks we close slighly negative. But, it’s the last day of the quarter, so makes it a tough call.

  7. 7
    zman Says:

    Analysts very quiet at present, we should see a number of target price changes later in the week and more next week as they begin the marking to market process for oil and gas. I would expect revisions for E&P to be down slightly on the gassier names. I would also expect oil service to see further hits as analysts make last minute changes prior to the start of earnings season.

  8. 8
    zman Says:

    Consumer confidence in a about an hour and a half should have some swing on the market today; forecasting a slight improvement.

  9. 9
    zman Says:

    NG unable to hold morning gains and the recent lows. Should get those supply numbers mid day.

  10. 10
    BirdsofpreyRcool Says:

    elduque — oops… re: TED… forgot to mention that it is the last day of the quarter. Really screwy things can happen in the short-term cash markets today. Banks might need cash to make capital ratios (so pay up for deposits), or clients might have a lot of cash to deposit (so banks lower their bid). You can see some REALLY screwy stuff on the last day of the quarter. It means nothing at all.

  11. 11
    zman Says:

    Nova Biosource files Bk, another alt energy firm (this time biodiesel) bites the dust.

  12. 12
    zman Says:

    Consumer confidence came in at 26 vs 25.3 in February, below expectations of 28.

  13. 13
    zman Says:

    ATW – fyi, they announced that their Southern Cross semi sub which has been idle since late last year will remain so at least through June as it can’t find work at a rate they deem reasonable.

    If they get it contracted in the vicinity of current rates for 2,000 foot water depth capable ships it probably adds 30 to 45 cents to annual earnings. 2009 earnings for ATW are at $3.84 (should assume no southern cross revenues for the year).

  14. 14
    Jay Reynolds Says:

    Wyo –

    My son and I were invited down to Biloxi over the weekend to see the Offshore Powerboat races.

    Unlimited turbines were very interesting. We got special seating at the end of the jetty and I’m here to tell you that watching a boat pass at 194 mph w/ 3200 HP is something to experience. Now they’re in the oilfield as well. Can’t wait to hear these units spooling up for a frac job!

    “As a response to the oil industry’s need for high-density pump capacity in chemical and general pumping trailers used for well stimulation, MTT also produced the MTT Turbine General Pump™, featuring dual 1,400-hp turbines driving dual 1,000-hp quintiplex pumps on a single trailer. Just released to the oilfield, these chemical and general pumps can be used for any number of fluids, cement, or acid.”


    Near the bottom of the page.

  15. 15
    zman Says:

    I’m here, working on a little project, if anybody wants anything on this very slow day.

  16. 16
    apbd Says:

    Obama off to Europe and the market is up.
    Is that a causal relationship?

  17. 17
    PackMan Says:

    apbd … maybe he stays there … can be named the Grand Poobah of Europe.

  18. 18
    zman Says:

    Frank to talk to SEC about M to M rule change:


  19. 19
    reefguy Says:

    IOC- finds oil rim, Mulachek on CNBC

  20. 20
    zman Says:

    Did he say what they think OOIP or recoverable on the oil?

  21. 21
    reefguy Says:

    I did not catch him, hoping someone in the gallery did

  22. 22
    reefguy Says:

    KRU- Crusauder had a market cap of $1.2 B in June

  23. 23
    RMD Says:

    CLB — anyone have thoughts on whether their business should not have deteriorated vs.co’s upbeat outlook on the 2/11/09 conf.call?

  24. 24
    zman Says:

    RMD – I’ve been mulling that myself in passing, no thoughts that you could call solidified yet. Sense is that coring activity would be down substantially in North America but that’s overly simplistic as their business is more diverse than it looks at first blush. Volumes and pricing on perf gun charges have got to be down though.

    Reef – its pretty incredible what’s going on. I wouldn’t count on a government bailout though, lol.

  25. 25
    zman Says:

    Reef – re IOC, you saw the reserves in the press release. They show net reserves of 351 mmboe and with the stock and debt combined at $1.16 billion it seems fairly well valued for current commodity prices. Best guess is it moves into real company status and garners a bit more premium but then trades with oil. Sad that I missed the recent run…this one just fell off my radar after so many delays. Any sense of whether their test rates at Antelope are real or hypothetical (calculated)?

  26. 26
    reefguy Says:

    Antelope tests are clearly hypothetical, which in a carbonate is bogus!

  27. 27
    zman Says:

    Right, I just figured they flowed it at 68,700 BOEpd for 5 seconds, shut it in, did the math, and called it a day, lol. They have enough gas to justify an LNG terminal and enough oil to have a development as well. Any idea what firm engineered those reserves?

  28. 28
    BirdsofpreyRcool Says:

    Credit Market update — credit clearly underperforming the green stocks I see on my screen this morning. Credit, sadly, is wider today from yesterday’s wider close.

    IG12 196 (IG11 238)

    HY12 70.875 (HY11 68.5)

  29. 29
    zman Says:

    was it Raymond James who was the big trumpeter of OIC, with the huge stock target price? Would be interested to hear what they are saying now.

  30. 30
    reefguy Says:

    GLJ Petroleum Consultants Ltd…

  31. 31
    reefguy Says:

    no, I never heard of them

  32. 32
    zman Says:

    re 30 … hmmmmm. Since they knew people would be dubious I wonder why they didn’t pony up for a Ryder Scott type household name to have a look.

  33. 33
    zman Says:


    Added CRK exposure. Probably a Haynesville update soon here following comments on their Feb 10 call of one in “about 6 weeks”.

    $10KP Trades

    Added (3) CRK $30 April Calls (CRKDF) for $1.75

    Added (10) CRK $35 April Calls (CFKDG) for $0.40.

    Both done on the mid with the stock flat on the day.

  34. 34
    reefguy Says:

    32- LTd suggests canadian… or brit

  35. 35
    elduque Says:

    How do I search for your update on SD last week?

  36. 36
    zman Says:

    Eld – you can search using the search box at upper left. Here’s that one from last Friday:

    From yesterday’s comment section on SD:

    * I thought it was caught up in redetermination fear but am not so sure of that now as being the depressing factor. Maybe it’s just gas prices and the potential for another reduction in capex for 2009.
    o They fully expect to keep the borrowing base at $1.1 billion. Feb outstanding there was $565 mm.
    o They have a couple of tranches of debt that add another $1.7 billion – no maturities before 2014.
    o They have no cash (not uncommon for an E&P) but are OK on their working capital, the Debt to EBITDAX and EBITDAX to interest covenants.
    * Implied value is about $1.70 per Mcfe, strangely close to the REXX sale price. This gives them no credit for their second big field (Frog Creek) which is undeveloped but discovered next to their core Pinon. And no credit for 36,000 acres in the Haynesville which might make a good asset sale for them later this year.
    * Debt to Total Cap is high at 75%; interest coverage is what I’d call poor but will be on the edge of the covenants…that’s probably not a problem and I’ve seen a number of waivers this cycle. They said they have been working with the lead bank to be clear on what they need to have in place to keep the revolver at $1.1 B. But the high leverage in this low commodity price environment is what’s holding the stock back until the redetermination is out of the way.
    * Will they survive? I don’t think there is much doubt at all that they will, the 85% of 2009 production hedged over $8 ensures that for now and they can ratchet back capex to keep from significantly expanding the draw on the revolver if the other 15% is impacted by a full year’s gas prices at these levels.
    * Redetermination in April could catalyze the shares but the high leverage will retard a PQ-esque type bounce.

  37. 37
    elduque Says:

    In order to find SD using the search button, if I type in SD I get everything that has an sd in the word. What am I doing wrong?

  38. 38
    zman Says:

    Nothing, that’s the way that works, unfortunately for a short ticker like that SD is common. You can also check the reports page for the longer one or ask me to find it.

  39. 39
    zman Says:

    Still no gas update from the EIA. Guess its a good thing they are busy hiring, lol.

  40. 40
    jat Says:

    Yeah, I got a call this morning from the EIA offices, they said it was delayed. Guy sounded like he was from outer space.

  41. 41
    zman Says:

    His name wasn’t Melvin was it?

  42. 42
    BirdsofpreyRcool Says:

    z — was that another reference to “Office Space”?? 😉

  43. 43
    zman Says:

    Oil popping back to green and over $49 as CNBC talks about how cruddy demand is. They really need to look at the stats before speaking.

  44. 44
    zman Says:

    BOP – no but good catch. I used to talk to Roy Kass (natural gas, now retired) and Melvin something (electricity and likely to run the place at some point) at EIA every other week or so. Roy was very smart, stats math wonk combined with common sense. Melvin would plug a missing number with last months or a random number in a heart beat before lifting a phone. Very frustrating that when you are looking for patterns, correlations etc in a mountain of data.

  45. 45
    BirdsofpreyRcool Says:

    two different Melvins… but sound strangely similar… hmmmmmm

  46. 46
    BirdsofpreyRcool Says:

    MIDDAY Overview

    · Equities are bouncing following Mon’s decline, led higher by financials; just like yesterday, the desk is very quiet (some describing this week so far as late Aug-like); financials are leading the way higher (up >4.5%) and tech also strong (up >2%). On the downside, retailers are off ~1% (JWN, M, ANF, LOW, etc, all pretty weak) and housing/builders weak (off the LEN report and Case-Schiller #s). Life insurers bouncing from their drubbing yesterday after LNC’s announcement this morning (group up 6%) and banks higher after couple banks pay back TARP (ONB and IBKC) and U.S. Comptroller of the Currency Dugan says the banking industry may report better Q1 earnings vs. Q4. overall, still feels very much like things are in a holding pattern – the tone is def. better than late Feb/early Mar, w/investors looking to add exposure on weakness, although it still feels like larger buyers are waiting/hoping for 760ish range on sp500 before stepping back in. On the calendar, there are a bunch of items this week (inc. G20 Thurs, FASB MTM on Thurs, and jobs on Friday), but the real focus has turned toward earnings (which kick off week of Apr 13) and bank stress tests (which are due by end Apr).

    · US$ – some headlines today, more w/the theme of the dollar losing its global dominance; according to the WSJ, since December, China’s central bank has signed bilateral currency swap agreements with six different countries, worth $650 billion in total (Argentina the latest, signed yesterday); according to the IMF, The dollar accounted for 64 percent of the reserves held by governments and central banks at the end of December, down from 64.4 percent at the end of September (Bloomberg)

    · Housing – the markets were enjoying a bunch of relatively positive data points on the housing front over the last few weeks (inc. FHFA prices, KBH’s earnings, new home sales, starts, etc), but the #s today weren’t so great. According to Case Schiller (they released their housing price index) – “There are very few bright spots that one can see in the data. Most of the nation appears to remain on a downward path, with all of the 20 metro areas reporting annual declines, and nine of the MSA’s falling more than 20% in the last year. Indeed, the two composites are very close to that rate and have been reporting consecutive annual record declines since October 2007. The monthly data follows a similar trend, with the 10-City and 20-City Composite showing thirty consecutive months of negative returns.”. LEN shares are off 16% on the day after its earnings report last night.

    · Bankruptcy filings & missed interest payments continue unabated; just this morning: 1) Riviera (casinos) said it has decided not to make an interest payment of ~$4M that was due Monday on its $245M credit facility & said its accountant expressed doubt about its ability to continue as a going concern; 2) Idearc & Sun-Times Media both filed for Chapter 11 in media land; and 3) Visteon says one of its subsidiaries in UK has entered into administration. Also note that the CDS settlement auction for Stations Casinos is today (there have been 5 CDS credit events in the past 10 days).

  47. 47
    zman Says:

    Thanks BOP re 46.

    Oil now eying $50. Oily CLR and WLL easily outperforming SU. At some point pretty soon I’d bet SU get’s back its oil proxy status, maybe not as tightly correlated as before but I bet it shapes up.

    NG hanging in there, awaiting the January numbers. Not expecting a world beater report showing huge declines, just more evidence of slippage and flattening in the key states.

  48. 48
    BirdsofpreyRcool Says:

    Something to ponder….

    hearing comments from NYC trading desk… “everyone is expecting the equity rally to fade…”

    but, when “everyone” expects something, does it usually happen that way?

  49. 49
    italyinvestor Says:

    Z – been getting slammed at work but trying to keep one eye on the market. Any thoughts on catalysts for HK this option period?

  50. 50
    zman Says:

    Italy – HK said on the 4Q call they would have an operations update out after the end of the quarter, hinted at early April. Should have another Eagle Ford shale well to talk about and a handful of Haynesville shale wells. They already redetermined on the bank line so that is not an issue. They also said no further reduction in capex until they see a 3 year gas strip at or below $4 and we’re not that bad off yet.

  51. 51
    elduque Says:

    RE search engine. When you are writing a piece on a stk. How about always starting off with the full name.

  52. 52
    zman Says:

    Oil service not getting much of a move today, up 0.3% on the OIH vs nearly 2% move up on the XNG.

    Elduque – good idea, will do!

  53. 53
    zman Says:

    Not a lot of rhyme/reason to moves today, it being quarter end. Still no word out of EIA, will let ya know.

  54. 54
    isleworth Says:

    Z- do you have any more color/comments on the letter from Centennial Energy Partners to GMXR mgt. saying they should be evaluating strategic alternatives?

  55. 55
    zman Says:

    Isle – Is there something you want me to check into. I don’t think it has much impact on the stock. These guys seem to be involved in several more distressed energy names in U.S. and Canada. I’ve not run across them before but their holdings and complaint style letters scream activist shareholder to me. They take big bets judging by their Form 4 and go for board seats at their companies. I’ve never heard of the guy listed in the letter and don’t know if he has a background in energy.

  56. 56
    Wyoming Says:

    JR – turbine frac pumps exist from the 70’s. I had 4 Solar turbines. Stand way back if they pressure test as low RPM’s are not easy and many lines have “failed” due to operator error.

    And you are right, they are absolutely fun to watch and listen to. If you ever get a chance, stand between a couple of the superpumpers (~2,200 HHP CAT or Dtroits). You can feel your internal organs moving.

    Forgot to mention that SLB released another 2400 last week in NAM. The goal is 10,000 and this represents about 25% here or 5% global. Source has it that they are prepping the international operations.

  57. 57
    zman Says:

    Thanks for the color Wyo.

  58. 58
    isleworth Says:

    ok tks Z.

    I just wondered if you knew the principals at Centennial and if their intentions were likely for real, rather than just gamesmanship. I’ll do a little digging and let you know if I can find out any more about them.

  59. 59
    kiaora Says:

    Z–Is there a way you can make it so we could hilite an entry and print it? You, BOP, Nicky, and Tater to name a few make some entrys(support, resistance, etc) that are worth saving. It would be easier to print them than keep a list of the entry & date.

  60. 60
    zman Says:

    K – have you tried using the print this post button at the top of each post?

  61. 61
    Wyoming Says:

    A slight rant by the Rolling Stone Author about the whole AIG debacle.


    Fair warning, a lot of flavorful word choices, reader beware.

  62. 62
    zman Says:

    EIA just bumped the release date for the Natural Gas Monthly back to April 3. Your tax dollars not working very hard at all.

  63. 63
    BirdsofpreyRcool Says:

    #62… sounds like Melvin hard at work! (where’s that stapler when you need it?)

  64. 64
    sane Says:


    Crude Up 3,300Mbls
    Gasoline Down 451Mbls
    Distillates Up 1800Mbls

    Imports Up 362Mbls/day
    Runs Down 163Mbls/day

  65. 65
    BirdsofpreyRcool Says:

    Daily Wrap-Up

    · Very volatile day – sp500 closed 797, up 1.3% (up 10.3 points), but had a low of 790 and a high of 810 today; sharp sell-off in equities into the bell off the highs; financials still best performing (up 6.7%) and tech also strong (up 2%). Energy, consumer staples, homebuilders, and autos all end in the red. Stocks traded to highs of the day around 3pm (@ 810) before getting hit hard and paring gains into the bell. Credit has been lagging all day (CDX has been wide since the open pretty much despite the sp500 being up 3% at its highs). From the equities desk: the bulk of the major activity has been occurring in the morning and then trailing off substantially into the bell and today has been no different (i.e. there was never a ton of buying behind the rally to highs @ 3pmET). Some covering helping to push financials higher, but not a ton of conviction or real long-only buying (the theme is: cover into earnings/stress tests, but don’t own long). Tech is acting very well overall, but a bunch of super-caps really skewing performance (MSFT up ~6%; CSCO/INTC also act well).

    · Why the sell-off into the close?? Not a whole lot of great reasons – headlines crossed on Bloomberg and Reuters talking about a GM bankruptcy around 3pmET (Bloomberg says “bondholders doubt a debt exchange will succeed outside of bankruptcy” and Reuters says a GM bankruptcy plan includes a split of the company, w/the profitable parts quickly leaving the restructuring process). Also around 3pmET – the GAO (Gov’t Accountability Office) put out a report urging Treasury to Require Concessions From AIG Stakeholders (employees, creditors, derivatives) according to Bloomberg.

    · Catalysts = key eco data to watch for tomorrow: ISM manuf, construction spending, pending home sales and auto sales all tomorrow.. on Thurs, the G20 commences, also FASB mark-to-market accounting vote and ECB meeting.. jobs # on Fri is much anticipated.. AA kicks off earnings next week on 4/7

  66. 66
    zman Says:

    Thanks Sane

  67. 67
    isleworth Says:

    GMXR – East Texas Geological Presentation today


  68. 68
    Wyoming Says:

    In case anyone is looking, I have other contacts but only one that I have used (not the one below). Amazing that the industry is still looking.



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